- GBP/AUD climbs 1% last week, but now forecast to ease lower.

- Bank of England interest rate decision in focus for Sterling.

- RBA minutes and Philip Lowe speech in focus down under.

© Taras Vyshnya, Adobe Stock

The Pound-to-Australian Dollar exchange rate is seen under pressure at the start of the new week, being quoted at 1.7803 having been as high as 1.7866 earlier in the day.

The exchange rate rose last week after a renewed bout of risk aversion in global financial markets sent the Antipodean currency tumbling, although some analysts are suggesting the British currency could cede ground to the Aussie during the current week.

Sterling's gain came after data showed the UK labour market in robust health during the month of April and retail sales resurgent during May, while the Australian economy also saw its unemployment rate fall faster than was expected, to 5.4% in May.

Nonetheless, price action was almost entirely a US Dollar driven affair, with Pound Sterling down 1% against the US Dollar and the Aussie dropping 2% against its North American rival. This left the Pound-to-Aussie rate just more than 1% higher for the week to Monday.

The US Dollar strengthened last week after the Federal Reserve gave a clear indication it will raise interest rates more times this year than markets had previously thought, and after US retail sales were shown rising at close to double the pace that economists had forecast for the month of May.

Strong US data has reignited the growth "divergence" narrative that had seen markets bid the Dollar higher in the eight weeks to the middle of June, at the expense of other currencies, due largely to a brighter outlook for the economy across the pond than that which prevails in either the UK or Australia.

Some economists are now forecasting the US economy will grow by 4% in 2018.

Concerning the technical outlook, the most recent anlysis available to us of the pair from a purely technical perspective hints at the potential for downside.

"The RSI is below 50. The Moving Average Convergence Divergence (MACD) is below its signal line and positive. The MACD must penetrate its zero line to expect further downside," says an assessment of the exchange rate at Trading Central, a provider of technical analysis.

However, the pair is below its 20 moving average (1.7837) but above its 50 moving average (1.7809). The 20 day moving average is a shorter-term indicator than the longer-term 50 day moving average and being below the 20 moving average hints at the potential for near-term weakness, although losses are likely to be shallow by nature.

Indeed, Trading Central forecast the Pound-to-Aussie rate will head lower to a target of 1.7709 this week, but they warn that if the exchange rate rises above 1.7880 then this would open the door to a possible move all the way up to 1.7981.

Above: Trading Central graph showing technical analysis of GBP/AUD pair.

Data and Events to Watch for the Pound this Week

The week ahead in the UK sees the economic data calendar fall quiet after an action-packed five day period that saw industrial production figures for April underwhelm the market, while unemployment data showed the labour market remaining in rude health in May and retail sales figures showed consumer spending coming back with a bang during the recent month.

The Bank of England interest rate decision for June is the sole event of importance in the calendar for Sterling, due at 12:00 pm Thursday, and markets are looking for the central bank to hold rates steady at their current 0.50% level. It isn't forecast to make changes to any other aspects of its monetary policy either, although markets will scrutinise the contents of the statement closely for clues as to how the Bank's views on the economy may have changed since its May meeting.

Economists and markets are currently looking to the August 02 monetary policy announcement for the next possible BoE rate hike. Pricing in interest rate derivatives markets implied an August 02 Bank Rate of 0.56% on Friday. If markets were really that confident about the BoE raising rates anytime soon then that implied rate would be somewhere closer to 0.75%.

Markets will also keep a close watch on the White House, China and European Union for signs of an escalation in the so called "trade war" after the US administration listed a large number of Chinese export goods that will be targeted by US tariffs over the coming days.

The move advances an earlier plan to pressure China into changing some of its trade practices and to voluntarily reduce its bilateral trade deficit with the US, but it also risks riling global financial markets if it looks at any point as if the two countries could be about to renew an earlier tit-for-tat tariff fight.

Tensions between the US and EU are also running high after President Trump slapped tariffs onto their steel and aluminium exports to the US.

Data and Events to Watch for the Australian Dollar this Week

The week ahead in Australia offers a sparsely populated economic data calendar where minutes from the latest Reserve Bank of Australia (RBA) policy meeting and a speech by RBA governor Philip Lowe are the sole releases of importance penciled in the diary for the currency.

Minutes of the RBA meeting will be released at 02:30 London time on Tuesday. Recent months have seen the RBA stick to the by-now well trodden script of bullish forecasts for both global and domestic economies, while sounding a cautious tone on the outlook for inflation.

The statement released after the latest meeting suggests this week's minutes are unlikley to throw up any surprises, while Philip Lowe's participation in a panel discussion on central banking at the European Central Bank forum in Portugal at 14:30 Wednesday has not been flagged by analysts as likely to have any implications for the currency either.

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